Originally Posted by militaryman
Who can retire saving $16K a year?
Seems quite a reasonable cutoff for the Gov. to provide especially considering the catchup contributions that would makeup for not always having contributed the Max.
16k for 35 years @ 7% = $2,200,000
Most probably can.
But at 3% inflation, 35 years down the road you'd have to spend $2.81 to buy what $1 used to buy, if my figures are correct.
And, IMO, even a 7% return is rather optimistic. I haven't seen much explanation of why stock prices should outpace economic or even company growth, especially as we're shouldering additional national debt. That stocks have outpaced company growth is shown by that the P/E ratio has slowly inched up over the decades; even at yesterday's close, a 13 or so P/E is still expensive historically. To boot -- I can't imagine many scenarios that doesn't cause hyperinflation or defaulting, that doesn't involve some artificial pressure to keep the cost of debt down by channelling investments in the direction of treasuries. Japan didn't implode, but they haven't grown or rebounded, either. But, again, out of scope for a hello thread!
A 5% return would yield $1445125 if my figures are correct. All the shockingly more paltry when that is only a half million in the dollar amounts of 35 years ago. Even using the 7% return of 2,200,000 that you provide, it's only $31K per year in original-year dollars using the desired-salary-times-25 rule. Liveable, but really tight...
(If I got any of the numbers wrong, don't hesitate to smack me!)
Of course, the above would change a bit if the 401K limits get adjusted up and you can always fill them up, if employer matching is included (although that's going away), and if catch-up contributions are taken advantage of.
We're really aggressive and extremely conservative savers. We have yuppie salaries, but we don't have A/C and our heat is at 60F, our youngest car is 10 years old, etc. It's a lifestyle! We do commit the cardinal sin of ordering delivery now and then, though.